Asian Millionaires Shun Banks and Take Control of Their Money

In this country we’re well aware of how the financial downturn has affected the common man. Life has been difficult since the market plummeted in 2008, and most industries haven’t yet recovered. But apparently it isn’t only the middle class that is changing their business practices in the face of economic uncertainty, but wealthy citizens around the world as well. According to a Bloomberg report released on Wednesday, more millionaires in Asia are turning their backs on investment products and banks, choosing instead to manage their money themselves. Today only 4% of the money in Asia is managed by bankers. By comparison, 23% of Europe’s private wealth is handled by money managers.

The report was co-authored by Peter Damisch, managing director at BCG out of Zurich. He feels that Asia’s wealthy upper class simply no longer trust private banks, due to the fallout from 2008’s crisis. This is obviously a very serious problem for international wealth management firms, many of which have expanded their dealings in Asia over the past several years. These organizations are spending more money than ever, to handle a smaller and smaller asset pool. For example, HSBC Holdings earned less in 2011 than it did four years prior, even while managing 25% more assets in Asia. Their net operating income in the Asia-Pacific region was $712 million in 2011, more than $35 million less than back in 2007, while handling nearly $8 billion more in assets.

According to Akbar Shah, who heads Citigroup’s private banking unit in Australia and Southeast Asia, this trend has more to do with the Asian consumer than with the ability of money managers. He feels that the culture there calls for a more hands-on approach, especially since the bulk of the private investor’s funds were made in Asian real estate, an industry that reacts to gut instinct as much as to hard data.

When UBS’ Enrico Mattoli, who manages investment products and services for some of his companies wealthiest clients was asked for his take, he pointed to the Asian investor’s unwillingness to settle for anything but maximum returns. He suggested that Asian millionaires are self-made on the whole, which leads to a larger desire to see continued growth. They didn’t rest on their laurels and inherit money; they battled for it. According to a study run by Scorpio Partnership and Standard Chartered in the region, the average investor expects an annual return of 12% or more over the next decade.

Prior to the big drop in 2008, most wealthy Asian consumers were sold derivatives, which would earn high returns as long as the stock market continued to rise. Many of these investment products average annual earnings of 8%-12%, which is clearly short of the Asian millionaire’s expectation. Clients are more aggressively negotiating down their money manager’s fees, and recognize that the goals of the bank do not always meet their own. Of course, these aren’t quick cash loans, but long-term relationships. Yet Asian investors are treating money managers more like high-priced secretaries than real decision-makers.